Saturday, 21 January 2023

Investing for the long term | Why long term investing is the way to go

Entering the New Year (2023) and with Lunar New Year (Rabbit) just around the corner, it is good to remind myself of what investing looks like and why I started. Compounding interest was one of the first things I came across when I was reading up on investing. It gave me insights on why starting young was the best way ahead. In the long term (10-20 years) based on past results although not guaranteed did show that investing in index ETFs in the long run produced more positive results

It's really patience and consistency to invest that I need as I only started investing a few years ago, as you know I previously invested in individual stocks and I am now focusing on index ETFs so we shall see in 10 and 20 years how it all turns out. Below are some of the pros of long term investing and different assets that you can buy for the long term.

Investing for the long term is a strategy that involves putting money into financial assets with the goal of generating returns over an extended period of time, typically several years or more. This approach can be a effective way to grow wealth and achieve financial goals, but it also involves some level of risk and requires patience and discipline. 

In this article, we will discuss the benefits of long-term investing, the different types of assets that can be included in a long-term investment portfolio, and some tips for successful long-term investing.

Benefits of Long-Term Investing

There are several advantages to investing for the long term:

  1. Compound interest: One of the most powerful benefits of long-term investing is the ability to earn compound interest. This means that not only do you earn returns on your initial investment, but you also earn returns on the returns you have already earned. This can significantly increase the growth of your investment over time.

  2. Time to ride out market fluctuations: Another advantage of long-term investing is that it gives you time to ride out market fluctuations. Markets can be volatile in the short term, but over the long term, they tend to trend upwards. By investing for the long term, you can avoid the temptation to sell when the market is down and instead hold on to your investments until they recover.

  3. Potential for higher returns: Long-term investing can also offer the potential for higher returns compared to short-term investing. While there is always a level of risk involved in investing, the longer you hold an investment, the more time it has to grow and potentially generate higher returns.

Types of Assets for Long-Term Investing

There are a variety of assets that can be included in a long-term investment portfolio, including:

  1. Stocks: Stocks represent ownership in a company and can be a good choice for long-term investors. While the value of individual stocks can fluctuate in the short term, the stock market as a whole has historically trended upwards over the long term.

  2. Bonds: Bonds are debt securities issued by governments or corporations. They can provide a steady stream of income in the form of interest payments and can be a good choice for investors who want a lower level of risk.

  3. Mutual funds: Mutual funds are investment vehicles that pool together the money of multiple investors and use it to buy a diversified portfolio of stocks, bonds, or other securities. Mutual funds can be a good choice for long-term investors who want professional management and diversification.

  4. Real estate: Real estate can be a good long-term investment, as it has the potential to appreciate in value over time. Investing in real estate can involve purchasing rental properties or investing in real estate investment trusts (REITs), which are companies that own and operate income-generating real estate assets.

Tips for Successful Long-Term Investing

Here are some tips to help you succeed with long-term investing:

  1. Start early: The earlier you start investing, the more time you have to benefit from compound interest and ride out market fluctuations.

  2. Diversify your portfolio: Diversifying your portfolio means including a mix of different assets in your investment portfolio. This can help reduce risk by spreading it across different types of assets, sectors, and regions.

  3. Be patient: Long-term investing requires patience and discipline. It’s important to resist the temptation to sell when the market is down and instead hold on to your investments for the long term.

  4. Review and rebalance your portfolio: It’s a good idea to review and rebalance

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  1. No need to resist temptation on big gains when your stocks started to pull back or correction?

  2. Warren Buffett: It's easy to get rich in stocks .... if you're not in a hurry ;)

    Look at any long-term compounding chart; the biggest gains occur in the last 20% of the timeline.

    The trick is to use instruments/assets that have proven history of long-term gains over 50, 100 or hundreds of years, so you can just DCA regularly & not care about daily, weekly, monthly or even yearly downturns.

    Most people will laugh at you. They want to get rich next week or next year :)

    1. Yea, definitely, a lot of people look for short term gains although it can happen, it's quite rare and managing a sudden influx of wealth is different. Slow and steady we go

  3. I suggest you pass CFA Level I, II, and III before you try to appear smart enough to teach us anything.

    1. Sure, will try my hand at that. Not teaching you anything, just information sharing. You can also teach me something without a CFA Level I, II, and III.

    2. Ok, maybe I can add that besides CFA, there are also FRM and CAIA credentials, together they are dubbed as "triple crown". Passing CFA Level II is sometimes considered (by some) to be equivalent to a bachelor's degree in finance and Level III, a master's degree. Similarly for FRM although it only has two levels and passing both is considered to be equivalent to a MFE. And btw, I can't teach you anything without a CFA Level I, II, and III, because I'm one of the lucky few who are a "triple crown" (sorry I lied, I'm one exam away). But I don't do information sharing, because no one would listen. I'll need to become a billionaire first before they take me seriously.